Today's startups are a significant source of innovation, as they employ emerging technologies in inventing and reinventing products and business models. Corporations that are brave enough to embrace a more open innovation strategy, increasingly look to startups as a source of external innovation. It has been proven that this type of co-operation is mutually beneficial, although, sometimes a challenge. Startups help corporations change their inner culture and innovation speed. By boosting the innovation speed, corporations get access to bigger market shares, lower costs and improve their reputation.

Innovation speed has become more important than scale.

Central elements for an innovation process are considered to be the mobility of resources and the alignment of incentives. Innovations are the most disruptive for the existing markets in organizational structures and management processes, which makes implementing these innovations challenging for more mature corporations.

These challenges stem from the decision-making processes. Corporations tend to favor decisions that fit the company’s timeframe and risk profiles, that are characteristic of its on-going business. When risks occur in product life cycles that are prolonged and difficult to predict, corporations tend to stick with their existing patterns.

In a corporate setting, risk taking is not as encouraged as it is in a more entrepreneurial setting and this type of shortcoming in the incentives can lead to a slower innovation process. Corporations should measure the benefits and costs of working with startups – is the risk of working with a startup really bigger than the cost of not working with them?

Fast innovators vs. Slow innovators

If you have ever worked in a large company, you know that decisions take time between all the conference calls, rounds of approvals, and the view points and weigh-in different people with different goals and agendas. Corporations should utilize the risk-taking innovators, aka startups, and let them run the project. Startups get moving quickly without having to go through extensive protocols so the job gets done for the corporation. The product made by the startups does not risk the corporation’s financial security either since they haven’t had to implement a new department, acquire new resources, or onboard any new employees.

A startup-corporate partnership gives freedom to both parties. Corporations can pursue their market opportunities quicker and startups have the freedom to execute on innovative ideas with less limited resources. In addition to the product itself, corporations can benefit from startups culturally as well. Studies show that companies that have less strict areas of responsibility are more innovative. This is because fresh views and ideas come up more often when stirred up and shifted within an open-minded team.

Corporations that work with startups and drive towards a more entrepreneurial culture end up gaining:

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